Modi effect? Rupee ahead of all Asia-Pacific currencies

Boosted by capital inflows and euphoria around the incoming government, rupee's surge to 11-month high levels has made it the best performing currency in Asia-Pacific region against the US dollar so far in 2014. With a gain of about 5.3% since the start of this year, rupee has sprinted ahead of its other Asia-Pacific peers, including Indonesia's rupiah and New Zealand dollar, in terms of year-to-date rise, shows an analysis of various currencies vis-a-vis the Greenback.

The rupee, which closed at 58.52 levels against the US dollar on the last trading day on Friday, has incidentally seen a lion's share of 5.3% gain in the past one month.

The Indian currency stood at Rs 61.8 level per dollar at the start of 2014 and has recorded a gain of 327 paise in less than six months, partly helped by robust foreign fund inflows. This marks a major turnaround since August last year when rupee touched its life-time low of 68.80.

"...positive sentiments out of the election results enabled us to upgrade our FII flows estimates by $5 billion to $20 billion, implying an overall BOP (balance of payment) surplus of $29 billion. We expect the USD/INR range to be 57-61 in FY2015," said Indranil Pan, chief economist of Kotak Mahindra Bank, in a report.

Under the leadership of its prime ministerial candidate Narendra Modi, BJP has recorded an unprecedented victory in the recently held Lok Sabha elections and the Gujarat strongman will be sworn in as Prime Minister on Monday. The highest-ever tally in the Lok Sabha elections has helped BJP secure a majority on its own, thus raising hopes of big-bang reforms to revive the economy.

In Asia-Pacific, the rupee's gains versus the US dollar are followed by the Rupiah (Indonesia) that has appreciated 4.6%, New Zealand dollar's 3.75% rise and Australian currency's 3.5 rise.

The Yen (Japan), the Won (South Korea) and the Ringgit (Malaysia) have gained between 2-3% in this calendar year so far.

Philippines Peso has appreciated 1.6% against the US dollar, followed by 0.5% uptick in Thailand's Baht and Singaporean dollar. While the Hong Kong dollar is almost unchanged since 2014 started, the Taiwan dollar and Chinese Yuan have lost value.

Some analysts, however, feel that the Indian rupee faces risk of some depreciation after its recent strong show.

"While Indian rupee is expected to depreciate slightly against the dollar from current levels (we pencil USD/INR to hover around 60 for this fiscal year), we expect it to gain against Yen and Swiss Franc," said a report from ICICI Bank Treasury Research Group.